Financial Statements

As a Bachelor of Commerce in Accounting graduate, I understand how overwhelming financial statements can seem at first—but they’re powerful tools that help you understand your numbers and what they mean for growth.Think of financial statements as the storytelling tools of your business—they reveal how well you are performing, where you stand financially, and how cash moves within your company. 

Understanding the Three Core Financial Statements 

1. Income Statement (Profit & Loss Statement) 

The income statement tells the story of your business’s performance over a period (monthly, quarterly, or yearly). Instead of just “profit or loss,” it highlights how revenue turns into profit after deducting costs like supplies, wages, and operating expenses. It’s essentially your scoreboard for business activity. 

2. Balance Sheet (Financial Position) 

The balance sheet is a snapshot of what your business owns(assets), what it owes (liabilities), and what’s left for you as the owner (equity) at a specific point in time. Beyond the basics, it shows how efficiently your business reinvests profits and uses borrowed money to support operations. 

3. Cash Flow Statement 

This report explains how money actually moves in and out of your business. It separates cash into operating (day-to-day), investing (buying or selling assets), and financing (loans, owner’s capital) activities. More than “cash in vs cash out,” it tells you whether your business can pay bills on time and still have room to grow. 

How financial statements interconnect 

These three statements may appear separate, but they weave together in a way that creates a full picture of your business’s financial health. For small businesses, this interconnection helps track not only what the business earned but also what they kept and what they can use.

Income Statement

• Connects To: Balance Sheet

• How They Interconnect: Net income adds to (or reduces) retained earnings in equity.

• Use Case:  Helps the business see how profits grow the owner’s stake in the business.

Balance Sheet

• Connects To: Cash Flow Statement

• How They Interconnect: Opening and closing cash balances come directly from the balance sheet.

• Use Case: The business will be able to confirm if changes in assets/liabilities match cash movements.

Cash Flow Statement

• Connects To: Income Statement & Balance Sheet

• How They Interconnect: Adjusts net income with non-cash items (e.g., depreciation) and working capital from the balance sheet. 

• Use Case: Helps the business understand why profit doesn’t always equal available cash.